Hewlett Packard Enterprise (NYSE: HPE stock) tumbled 9% on Friday after the company revealed that its blockbuster AI server story is hitting speed bumps.
The development came as HPE reported its Q4 earnings, which displayed a mixed picture. The company posted solid profit margins but a revenue shortfall that signaled trouble ahead.
HPE missed Wall Street’s revenue target by $260 million, came in at $9.68 billion versus the $9.94 billion consensus, and offered cautious guidance for next quarter that sent investors scrambling for the exits.
The investors looked concerned around the slowing enterprise spending, particularly around AI infrastructure.
HPE stock: When hype meets lumpy demand
The drop in HPE stock was sharp as investors faced trouble in digesting a key metric. HPE’s server business, the crown jewel of its AI pivot, contracted 5% to $4.5 billion in the quarter.
As per the management, the culprit behind the contraction wasn’t a lack of demand, but timing.
Large government and enterprise customers who ordered AI servers have delayed their deployment dates, pushing shipments into future quarters.
Chief Financial Officer Marie Myers acknowledged the “lumpiness” will likely persist as the company pursues bigger, higher-margin customers with longer, more unpredictable project cycles.
Analysts flagged the fundamental contradiction: yes, HPE booked $2 billion in new AI server orders, but the delayed shipments mean near-term revenue will stay under pressure.
Moreover, what further spooked the investors is the margin story.
Server segment operating margins compressed to just 9.8%, down from 11.6% a year earlier, squeezed by pricing pressure and the rising cost of components.
Morgan Stanley and Bank of America had endorsed HPE’s AI strategy, but Friday’s numbers hinted that execution might outpace customer readiness.
A sector-wide caution signal
HPE’s stumble echoed through the enterprise technology complex.
Dell, Cisco, and Lenovo have all felt similar pressure from the same underlying issue: customers are shifting from immediate panic-buying to more measured, deliberate spending on AI infrastructure.
The companies betting hardest on a sustained AI boom are finding that customers actually want to see returns on prior investments before committing the next tranche of capital.
That shift, from urgency to skepticism, rippled through the entire data center supply chain on Friday.
CEO Antonio Neri tried to frame the quarter positively, noting that the Juniper Networks acquisition is already contributing and that Catalyst, HPE’s cost-reduction program, exceeded targets.
But guidance revisions rarely inspire confidence, and investors were already keyed up after HPE missed revenue targets in recent quarters.
The stock, which has shed roughly 25% since the new year, now trades at depressed multiples that reflect lingering doubts about whether HPE’s transformation story can overcome the near-term slowdown in enterprise spending.
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